Employers jump as changes come to overtime regs

Mississippi employers are scrambling to comply with the new overtime regulations recently promulgated by the Bush Administration, which call for sweeping changes in the determination of overtime pay for “exempt” employees.

The U.S. Department of Labor’s (DOL) proposed changes to the “white-collar regulations” are slated to take effect August 23. Even though Congress has threatened to block the implementation of the new regulations, which could affect the overtime eligibility of 6.7 million employees, no action has been taken.

When Congress enacted the Fair Labor Standards Act (FLSA) in 1938, all employers were required to provide employees overtime pay of one-and-a-half times their normal wage for each hour worked above 40 hours per week. But the FLSA made exceptions for certain classifications of “salaried” employees for whom overtime would be unwieldy, such as doctors, lawyers and managers.

“The tests were put together during the Industrial Age when most employees were blue-collar workers, and they were clearly not exempt,” said Mike Fitzgerald of Butler, Snow, O’Mara, Stevens & Cannada, PLLC, in Jackson. “As America’s workforce became more service-oriented, the lines became very blurred. The exemption tests were never updated to keep up with the changing scope of the workforce. Employers misclassifying employees faced huge class-action judgments against them. They had to pay back overtime wages, which, under FLSA, was doubled. It was a really confusing mess for employers and the tests were badly in need of updating, which the Department of Labor has done.”

Despite the state’s reputation for “jackpot justice,” Mississippi courts have not been inundated with these cases, said Ann Bowden-Hollis of Butler Snow.

“Those cases generally haven’t made it to the courtroom, either because the employee contacted the local Wage and Hour Office, and that office contacted the employer, who corrected the problem, or the claim was never brought,” she said.

Overwhelming response from employers, unions

When the DOL released a proposed version of the new rules for public comment last March, the response was overwhelming. Employers grumbled about the exorbitant cost of implementing the new regulations. Labor organizations criticized the plan, saying the regulations were insufficient to protect workers. When the AFL-CIO established a Web site where union members could submit comments to the DOL, 80,000 responded.

As a result of public outcry, the final regulations emerged as a watered down version of the original proposal.

“Any change is negative because it’s never in favor of the worker,” said Robert Shaffer, president of the 61,000-member Mississippi AFL-CIO. “There may be situations where overtime works, but it opens the door to so much abuse. Look at comp time. What happens if you work someone seven days a week for three or four weeks in a row and then lay them off? People should either work their business to hire enough workers or build overtime pay into the budget. We shouldn’t be putting more stress on workers to increase the bottom line and I think that’s what these new regulations are designed to do.”

More room for manipulation existed under the old system, said Fitzgerald.

“The union risk should be minimized by changes to the exemption tests,” he said.

Employees must meet three tests to be exempt from overtime: salary, salary-basis and “duties” tests. The most striking regulation change is that the old rule for the salary test required an employee to earn $155 per week. The new rule changes that amount to $455 per week. (The original DOL proposal called for $425 per week.) If an employee makes less that the weekly amount, the employer must either boost the employee’s wages or begin paying overtime.

The old and new rules of the salary-basis test remained basically the same: an employee’s salary must be fixed on a weekly basis with no deductions for partial-day absences; the employee’s pay cannot fluctuate based on the number of hours worked.

“An employer cannot make deductions for absences related to a doctor’s appointment, a partial sick day or a half-day of vacation without jeopardizing the employee’s exempt status,” said Fitzgerald.

The new regulations contain limited “permissible deductions” that can reduce an exempt employee’s salary for occasions such as safety-related suspensions and personal days. These permissible deductions remain part of the regulations, and the DOL added two permissible deductions: for full-day disciplinary suspensions and for unpaid medical leave under the Family and Medical Leave Act.

If an employer mistakenly deducts an exempt employee’s salary, the error can be corrected to retain the employee’s exempt status. However, an employer must fulfill certain requirements to take advantage of this “safe harbor.” Employers must also maintain a formal policy prohibiting improper deductions, which must provide a mechanism for employees to complain to management when deductions occur. This policy, modeled after sexual-harassment policies that have become commonplace, will necessitate employee handbook revisions.

The new rule for the “duties” test constitutes more streamlined “standard duties” tests compared to the confusing “long test” and “short test.”

“One of the most difficult questions employers face under the old rules about exempt employees is how to determine when someone meets the complicated ‘duties’ test,” said Bowden-Hollis. “Everybody is better served with a clearer way for employers to apply the tests and make more accurate determinations of employees exempt from overtime requirements.”

Under the new regulations, the primary duty of executive employees must be to manage a company or recognized department. They must supervise at least two employees and be able to hire and terminate employees or recommend such actions that are given “particular weight.”

“It’s important that ‘particular weight’ was defined based on a number of court decisions that gave it a definition,” said Bowden-Hollis. “Before, it wasn’t readily apparent.”

Also under the new rules, administrative employees must perform office or non-manual labor that directly relates to the management or general business operations of the employer. Their job must require discretion and independent judgment on significant matters. Insurance claims adjusters, financial advisors and human resource managers fall under this category.

Professional employees’ primary duty must consist of work that requires advanced knowledge, is intellectual in nature, and requires consistent discretion and judgment. This rule would apply to professionals working in a field of science or learning, such as lawyers, doctors, CPAs, registered nurses, dental hygienists, and other licensed professionals.

As the deadline approaches…

Before August 23, employers should have on their to-do list:

• Audit exempt positions to determine if workers in those positions will continue to qualify for exemptions under the new rules;

• Modify salaries/wage structures or duties, or both, to assure they’re in compliance with new regulations; and

• Make appropriate changes to company handbooks or other written communications to employees so employers can take advantage of the Safe Harbor Rule when necessary, said Bowden-Hollis.

“Right now, we’re evaluating how these regulations will affect us,” said Billy Sims, vice president of human resources for Southern Farm Bureau Life Insurance Company in Jackson. “There are a couple of jobs we’ll have to review for overtime qualifications, but I think we’re in pretty good shape.”

To assist employers with compliance of the new regulations, the DOL has prepared a downloadable Power Point presentation in the form of a seminar on its user-friendly Web site, www.dol.gov.